Distorted Technology Adoption

Abstract To what extent do firm-level institutional distortions drive cross-country technology differences? I develop a quantitative model of technology adoption in which heterogeneous firms adopt technology depending on their underlying productivity and institutional environment. The institutional environment is represented by size-dependent firm-level wedges on revenues that distort firm decisions. The model is calibrated to match the US firm employment distribution and the average adoption length of new technologies. In less developed countries, measured size-dependent distortions hinder highly productive firms, delaying the adoption of new technologies as these firms are (otherwise) early adopters. Measured differences in size-dependent distortions explain around half of the observed cross-country variation in adoption lags. Additionally, distorted technology adoption over doubles the aggregate productivity loss compared to static misallocation alone.